WestJet posts 45 percent drop in profit, to buy up to 20 aircraft

Muvija M

3 Min Read

(Reuters) - Canada’s WestJet Airlines Ltd (WJA.TO) reported a 45 percent drop in quarterly profit on Tuesday, and said it agreed to buy up to 20 Dreamliner planes from Boeing Co (BA.N) as part of a plan to add fuel-efficient aircraft to its fleet.

Shares of the Calgary-based carrier fell as much as 5.7 percent to C$21.54 on the Toronto Stock Exchange as the aircraft purchase was seen as expensive.

“(The order) will result in elevated capex for the next several years,” analysts at Cowen & Co wrote in a note, adding that 10 Dreamliner planes will cost WestJet about C$1.85 billion at current exchange rates.

WestJet raised its full-year spending target on Tuesday to C$1 billion, up from a prior forecast of C$900 million-C$920 million, party due to the Boeing order.

WestJet will fund the aircraft purchase with cash from operations, CEO Gregg Saretsky said on a post-earnings call.

The company, Canada’s second largest carrier, said the Boeing deal includes commitments for 10 787-9 Dreamliner aircraft to be delivered between 2019 and 2021, with options to buy 10 more aircraft.

The 787-9 planes — about 20 percent more fuel-efficient than the 767s WestJet owns — will allow the airline to offer new routes in Asia, South America and Europe amid stiff competition from larger rival Air Canada (AC.TO).

WestJet said in late-April that it planned to launch an ultra-low-cost carrier (ULCC) in Canada.

The low-cost carrier would be more of a “separate vehicle”, said Bob Cummings, an executive vice president at WestJet who is responsible for the yet-to-be-named ULCC.

WestJet flew 5.7 million passengers in the first quarter, up nearly 7 percent from a year earlier, helping the company post a better-than-expected quarterly profit.

Excluding items, WestJet earned 56 Canadian cents per share, according to Thomson Reuters I/B/E/S, beating analysts’ average estimate of 50 Canadian cents.

However, WestJet’s aircraft fuel costs jumped 41.5 percent to C$235.5 million ($172.3 million) in the quarter ended March 31, contributing to a sharp drop in profit.

WestJet’s net earnings fell to C$48.3 million, in the first quarter, from C$87.6 million, a year earlier.

The company also forecast a 23 percent to 26 percent rise in fuel costs per liter for the current quarter.

Oil prices have nearly doubled from multi-year lows a year ago, weighing on profit margins at several airlines.

WestJet’s shares were down 3.8 percent at C$21.97 in afternoon trading.

Reporting by Muvija M and John Benny in Bengaluru; Editing by Sai Sachin Ravikumar and Shounak Dasgupta